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Overdraft

Overdrafts are lines of credit provided by banks when you withdraw more than your available credit. They effectively increase the funds available to you and work in a similar way to personal overdrafts.

More than 16% of SMEs use an Overdraft

British Business Bank SME Finance Monitor 2017

Key requirement

You need an existing business bank account or to be willing to set one up to access an Overdraft

Key benefit

Helps finance working capital quickly through your bank

Key consideration

Traditionally short-term working capital solutions

What is an Overdraft?

Overdrafts are lines of credit on your business’ bank account that helps short term cashflow beyond what your business can fund from its own capital.

Where a Business Loan comes with fixed repayments and interest, Overdrafts charge interest on the overdrawn balance only. They can be repaid as and when your cashflow allows.

Overdrafts can be repayable on demand at any time by your bank and fees may be charged by the lender for the arrangement.

Who’s involved in a Business Overdraft?

Setting up a Business Overdraft is straightforward and involves you and your bank. You can typically arrange Overdrafts in a branch, over the phone and online depending on your bank.

Is my business eligible for an Overdraft?

If you don’t fulfil some of the eligibility requirements set out by your bank, you may be refused an Overdraft.

Banks review your business and its financial history when you apply for an Overdraft. Your personal and business credit history will be checked with a credit reference agency to see if you are a reliable borrower.

You may need to outline how you will use and repay your Overdraft. Typically, the larger the Overdraft you want, the more details your bank may need to see.

You may need to provide an asset such as property as security for the Overdraft too. If you can’t provide an asset or you don’t have assets of sufficient value on your balance sheet, your application may be denied.

There are other basic criteria you’ll need to fulfil too, for example, you’ll need to hold a business account with the bank, or be willing to set one up, and you must have authority to commit your business to the borrowing.

67% of new Overdraft applications were successful in Q2 2017

British Business Bank SME Finance Monitor 2017

What if your business is declined an Overdraft?

In November 2016, the Bank Referral Scheme was launched. The Bank Referral Scheme helps eligible businesses that have been unsuccessful in applying for finance from some of the UK's major banks find finance elsewhere.

If you're unsuccessful, participating banks are required by law to offer you a referral to an alternative finance platform.

Other finance options

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We are a UK government owned business development bank increasing the supply of finance available to growing smaller and medium sized businesses. The British Business Bank is not regulated or authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA).